Lynas Corp in debt talks

Lynas Corp in debt talks - The West Australian

Lynas Corp shares dropped 5 per cent today as the WA miner was forced to renegotiate the covenants for a $US225 million ($216 million) credit line with Sojitz Corp because of its struggle to win approval for a processing plant in Malaysia to treat rare earths from its Mt Weld mine near Laverton.

At the close, shares in Lynas were down 5 per cent, 4 cents, to 75.5 cents. On Tuesday, they closed closed down 8 per cent at 79.5 cents.

In its annual financial report, released after the close of the market yesterday, Lynas said it had been forced to renegotiate the terms of the Sojitz loan to push back the measurement of financial covenants - understood to include debt service coverage ratios and debt to equity ratios - for nine months.

Originally expected in the September quarter last year, political opposition in Malaysia to the plant delayed the issue of Lynas' temporary operating licence until early this month.

The plant has been ready to begin operating since May, but because of the delays is not expected to start processing until next month.

Even that date may be pushed out, with Lynas yesterday also announcing that Malaysia's Kuantan High Court had forced a temporary halt to work at the plant ahead of an October 4 hearing on an application from anti-Lynas lobby groups for an injunction to prevent the issue of the temporary operating licence.

It is understood the renegotiation of the debt covenants was necessary to allow Lynas to open an additional line of credit to provide working capital.

Lynas chairman Nick Curtis said early this month that the delays had meant Lynas would likely need extra capital to see it through to a point where it was cash flow positive.

Lynas has not yet said how much extra funding it needs, but its annual report disclosed that the new terms of the Sojitz loan would cap further credit lines at $US80 million.

In return for relaxing the covenants, Sojitz had also demanded temporary restrictions on capital and dividend returns to shareholders. Lynas has also agreed to a temporary rise in the interest rate on the loan, from the London interbank offered rate (Libor) plus 2.75 per cent, to Libor plus 5.25 per cent.

Lynas also has $US225 million in convertible notes with US private equity firm Mount Kellett Capital Management. But it is understood those notes did not include covenants preventing Lynas from taking on extra debt.

The Sojitz loan was to fund construction of the second phase of Lynas' plant, which would take production to 22,000 tonnes of rare earth oxides a year from initial production of up to 11,000 tonnes a year.